IPO news: Here’s what to look for when KinderCare Learning goes public next week

KinderCare, a major player in the early childhood education and care (ECE) sector, is set to go public next week. Based on data provided by the company in its filings, the ECE market is a highly fragmented one with the top three providers representing approx. 5% of total capacity as of January 1, 2020.

Several ECE providers faced challenges during the pandemic owing to reduced enrollment, causing many of them to close down. However, evolving work styles are driving a preference for flexible ECE solutions and there appears to be room for growth for quality ECE providers. Here are a few things to know about KinderCare’s market debut:

IPO details

KinderCare Learning Center is scheduled to go public on Thursday, November 18. It will begin trading on the New York Stock Exchange under the ticker symbol KLC. The company will offer 25.8 million shares at a price range of between $18 and $21 to raise $502.7 million. The IPO will be managed by a group of underwriters led by Barclays and Morgan Stanley.

Company intro

KinderCare describes itself as the largest private provider of early childhood education and care services in the US by center capacity. It serves children from 6 weeks to 12 years of age across its footprint of 1,490 early childhood education centers with capacity of more than 195,000 children and contracts for more than 650 before- and after-school sites located in 40 states and the District of Columbia as of October 2, 2021.

Between 2018 and 2020, the company acquired 163 centers and opened 47 new greenfield centers. From 2017 to 2019, it achieved compound same center revenue growth of 4.5%. It also increased its same center occupancy to 72% in early 2020 from 69% in 2017.

Financials

In 2019, before the start of the pandemic, KinderCare generated revenue of $1.9 billion while net loss amounted to $29 million. In 2020, revenue dropped to $1.4 billion while net loss widened to $129 million. Same center revenue fell by 25% mainly due to same center occupancy dropping to 47% from 72% in early 2020.

During the pandemic, the company had to temporarily close 1,074 of its centers and 547 before and after-school sites. In the latter half of 2020, it reopened 1,021 centers and approx. 320 before and after-school sites. Since then, the company’s enrollment has markedly improved. For the three months ended October 2, 2021, KinderCare’s same center occupancy increased to 64%.    

During the first nine months of 2021, KinderCare had $1.3 billion in revenue and $41 million in net income. Same center revenue increased by 36% versus the same period in 2020, helped by a rise in same center occupancy to 62%.

Market opportunity

In its filings, KinderCare states that over 17.5 million workers, or 20% of the American workforce, rely on childcare every day. Based on data from the Bureau of Economic Research, the US market for private expenditures on education-focused care for children zero to five years of age was $15.2 billion in 2019. The company estimates that the market for private expenditures on education-focused care is expected to grow at a compound annual growth rate of 6.4% between 2021 and 2026, excluding any impact from governmental stimulus.

KinderCare believes the market opportunity for scaled ECE providers will grow due to several factors including the recognition of the benefits of ECE as well as an increase in the participation of women in the labor force. The labor force participation rate of women aged 20-44 in the US rose from 74% in 2009 to 75% in 2019.

In addition, reduced capacity due to the pandemic as well as evolving work styles create opportunities for ECE providers. Between September 2019 and September 2021, around 13,000 centers, representing an estimated 20-25% of industry capacity, closed down and have not reopened. This reduction in capacity provides companies like KinderCare with greenfield expansion opportunities.

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